Are There Alternatives to the Individual Mandate in the Health Reform Law?

Today, the House will begin debating the “Repealing the Job-Killing Health Care Law Act”—the Republican effort to reverse the far-reaching 2010 health measure. As has been widely noted, it is a symbolic vote that will lead nowhere—in part because, despite the GOP rhetoric, the public supports most of the law.

With one exception.

Americans detest the law's individual mandate—the provision that requires everyone to either have insurance or pay a tax. According to a November Kaiser Family Foundation survey, more than two-thirds of those polled said they want Congress to repeal the mandate. By contrast, more than 70 percent would keep the part of the law that bars insurance companies from denying coverage to people who have pre-existing medical conditions.

And the public isn’t alone in its discomfort. Even Barack Obama opposed the mandate during his presidential campaign. And a growing number of Democratic senators are seeking an alternative. At the same time, the provision is the subject of a raft of legal challenges, some of which are likely headed to a highly-politicized Supreme Court.

The problem is that a system that requires insurance companies to sell to all comers but makes it easy for people to delay buying coverage until they are actually ill is a recipe for failure. Risk pools would be overloaded with sick people whose claims would drive up premiums for everyone, forcing out more and more healthy buyers. The insurance biz memorably calls this phenomenon “the death spiral.”

As Health and Human Services Secretary Kathleen Sebelius says, “Without everyone in the health insurance market, costs will increase, people with pre-existing conditions will continue to be shut out of coverage, and insured Americans will continue paying for those who don't get coverage."

A new study by the Urban Institute’s Health Policy Center concludes that, without the mandate, the new law would cover only 10 million of the uninsured, compared to 28 million under the current design.

In some ways, the mandate represents the worst of all policy worlds. Americans hate it because they can’t stand the idea of being made to get coverage or pay a tax. On the other hand, the initial levy is so low—only $95-a-year—it isn’t much of an incentive to buy insurance. The penalty is supposed to gradually increase to as much as $695 or 2.5 percent of taxable income, but Congress could well bow to the inevitable pressure to block the --let's all say it together-- "job-killing health tax increase.”

In this environment, both pols and policy analysts are looking for more palatable—and possibly more effective-- alternatives to the mandate. And there may be some.

Health consultant Bob Laszewski, for instance, suggests dumping the mandate and replacing it with a system that allows consumers to buy insurance with no limits on preexisting conditions--but only when they start a job or are first eligible to buy coverage through an exchange. They can wait to purchase if they choose. But if they do delay, they would not be covered for any pre-existing condition for two years.

Gail Wilensky, a top health advisor to President George H.W. Bush, would charge higher premiums to those who wait to enroll, much as Medicare does today. Of course, both Gail’s and Bob’s plans are taxes too, but they somehow sound more palatable than a mandate.

Lewin Group vice president John Sheils has a somewhat different idea. He’d create a very limited “open season” each year during which people could enroll. If they failed to sign up in that narrow window, they would have no coverage until the next enrollment period.

We have experience with the individual mandate. Massachusetts, for instance, has one (thanks to former GOP Governor Mitt Romney and the Heritage Foundation), and it seems to work. It is less clear how young people would respond to the Medicare model or other penalties for delaying enrollment. But given the politics, we may be about to find out.

21Comments

AMTbuff :: 5:27 pm on January 18th, 2011:

In my opinion, the health care law was designed to destroy the private insurance industry over a period of years by making it unprofitable. This will leave the public option as the only option.

The genius of this is that any changes to the law without repealing the popular parts actually accelerate this process. For example, eliminating the mandate to purchase insurance without eliminating the requirement to cover preexisting condition will drive insurers out of business very quickly.

Partial repeal will bring on national health care even sooner than will the current law. Democrats who desire this result should just say “Make my day”.

Michael Bindner :: 11:58 pm on January 18th, 2011:

Make my day.

Michael Bindner :: 12:18 am on January 19th, 2011:

If mandates go, pre-existing condition reforms must also be repealed unless the goal really is some form of single-payer insurance – which it may be. Such a scheme would still utilize insurance companies as claim processors, but without the requirement for a sales force of agents or loss prevention specialists (who would become fraud investigators instead). These activities would also mean a gauranteed profit, so the companies may be crying all the way to the bank.

I suspect that instead mandates and pre-existing rules will be repealed and replaced with a fairly robust public option available to anyone who can’t afford private insurance or who can’t get it due to a pre-existing condition. It would be low cost on the premium and copay side, but would be subsidized by a non-avoidable payroll, VAT or VAT-like business income tax.

The other alternative is Single-Payer Catastrophic insurance, however I don’t think the vast majority of voters would support any effort to deprive them of the comprehensive insurance they have grown to rely upon, even though that approach is largely, but not solely, responsible for increased cost.

The real projected problem is demographic – so the solution must be as well. You need to broaden the base of whatever levy covers health care and ideally you should consolidate them into a single tax rather than dividing funding between income taxes, premiums and payroll taxes. Options for this include getting more taxpayers by either immigration or childbirth (or a combination of both of these), extending the levy on non-wage income in the HI payroll tax to all wage earners, not just the rich, or converting the whole payroll tax to a straight up consumption tax on either consumers (a VAT) or employers (a VAT like business income tax on all employers and all value added, including wages). Even with a broader base, rates must go up – although increasing the payroll tax by 65% is only making it 5% of income – up from 2.9%.

If the Business Income Tax covers all federal social spending, including education, housing, TANF and health it will be considerably higher than 5%. It will be more like 28% before raising it high enough to also include an expanded the Child Tax Credit (of $6000 per year so that it includes enough for housing) and the Health Insurance Exclusion, in which case the rate is closer to 34%.

eris :: 10:43 am on January 19th, 2011:

I’m not a Democrat, but I’ll say “Make my day” too.

Also, I don’t give a rat’s hairless tail about insurance companies ability to profit. I do, however care that I have access to affordable coverage.

Alan :: 10:53 am on January 19th, 2011:

I would suggest that the mandate be replaced by the following:

If a person wants to go uninsured or self-insured, that person may do so without penalty. If the person needs medical care, he or she would be responsible for payment. However, if the person was unable to pay for his or her health care withing one year after receiving it, that would have the following consequences:

1) The government would make payment on that person’s behalf. This would prevent the health care provider from having to pick up the tab and driving up everyone else’s health care costs.

2) As a consequence of (1), since the government guarantees payment, no health care provider would be able to deny coverage based on the person’s financial condition.

3) After the government makes payment on the person’s behalf, the person is automatically enrolled in a health care plan for the remainder of his or her life, which I will refer to as the “Mandatory Plan”. This is not optional.

4) All person’s in the Mandatory Plan would be assessed a monthly payment based on both the amount they cost the system and their ability to pay. The payment would be mandatory, could not be discharged in bankruptcy or by death, and could be enforced by all means available to the government, including garnishment of wages and seizure of assets.

5) The monthly payment for each person would be set by actuaries and would be sufficient to ensure that the total amount collected by the government would equal the total amount paid out, including the amounts paid out to health care providers prior to enrollment in the plan.

Here is what this plan would accomplish:

– It would guarantee access, since health care providers could not reject people without insurance and without the ability to pay.

– People could decide for themselves if they want insurance, i.e., it would not infringe on any alleged constitutional right to decide what products and services to purchase.. If however, a person opts out of insurance, they would be responsible for the consequences. They would not be able to take advantage of the system or be subsidized by people who did purchase insurance. Instead, the people who did not purchase insurance and defaulted on payment would be placed together into a pool and they would subsidize each other.

– It would be revenue-neutral, since the full cost would be paid by people who elect not to purchase insurance and then default on a health care bill.

That is my suggestion for replacing the individual mandate.

AMTbuff :: 11:52 am on January 19th, 2011:

Alan, your would result in taxpayers paying a large fraction of all end of life medical expenses. (Those people die long before paying back their expenses.) This is currently the case under Medicare, but that’s not sustainable either.

AMTbuff :: 11:59 am on January 19th, 2011:

>The other alternative is Single-Payer Catastrophic insurance, however I don’t think the vast majority of voters would support any effort to deprive them of the comprehensive insurance they have grown to rely upon, even though that approach is largely, but not solely, responsible for increased cost.

You are 100% correct that Catastrophic insurance (similar to fire insurance and other forms of insurance) would solve many problems. Unfortunately the concept of Catastrophic coverage is anathema to progressives because it eliminates the government’s role in routine health care.

As things stand, both parties can agree that a catastrophic health care law was enacted in 2010. Democrats know that it caused an electoral catastrophe last November and Republicans know that it will accelerate the bankruptcy of the government over the long term. We need to replace this catastrophic Health Care law with a Catastrophic Health Care law.

Alan :: 12:15 pm on January 19th, 2011:

I don’t agree with that. Under the proposal I made would be revenue neutral and not impact the insured; all of the costs would be paid over the lifetime or from the estates of people who elected to go uninsured and then defaulted on their health care bills would pay. But if it were not possible to make the books balance due to the high cost of end-of-life care, then coverage under the Mandatory Program could be limited (yes, rationed), or the program could have an age cutoff.

The issue that you raise however it an important one: there are only so many $$$ out there that can be used to pay for health care, or that we want to use to pay for health care. Unfortunately, the ACA, despite its name, is more about access to care than it is about costs. No matter what system you have, Medicare, the current ACA or some other plan, at some point, costs are going to have to be addressed. We can’t continue spending unlimited $$$$ on unlimited health care. I have a proposal that addresses costs as well, and again relies on individual choice and personal responsibility, but I limited my post above only to replacement of the individual mandate.

Will White :: 1:43 pm on January 19th, 2011:

Unfortunately, this doesn’t acknowledge one important fact: The groups that will be most likely to forgo insurance are the young and the impoverished.

I am also assuming here that you aren’t expecting the government to force people to buy insurance after they visit the doctor for a cold, but instead after a visit to the hospital … let’s call it after an expense in excess of the standard $2,000 deductible.

What does this mean?

Health care costs increase drastically with age and after a major health event such as cancer, HIV infection, diabetes or heart disease. Once someone finally elects to get coverage after not having had it before, they are going to get more expensive to cover over time, not less.

Individuals that elected not to have coverage and then need the government to guarantee payment of their medical costs after the fact will likely never be able to pay for that initial expense and their estate will also be unlikely to be able to pay it. If they cannot shed the expense in a bankruptcy, then we are simply impoverishing those on the fringes even more than they are already which I don’t think is the goal.

The failure here is that middle class people are assuming everyone has a 401k and lives like they do and that their estate can pay for it and the only reason they don’t have coverage is because they are slackers … this is wrong on its face. The largest groups of people without coverage are those on the fringes without full time jobs providing coverage.

The mandate helps force individuals that can choose not to have coverage out of luxury and convenience … the young to subsidize the old and infirm.

I’m open to other suggestions, but looking at the current insurance model and short of single payer, the mandate makes sense to me.

Will White :: 1:53 pm on January 19th, 2011:

I think Republicans really missed the boat by not pursuing a Catastrophic Care insurance much like the current law with a mandate but with a high deductible around $50-100k coupled with a mandated non-expiring 401k or FSA like pre-tax private health account that could be used over time to cover expenses on a yearly basis. This would have allowed individuals to control their medical costs and forced competition in the market place for basic medical coverage especially if the funds could be passed on to their heirs as part of their estate.

Michael Bindner :: 1:56 pm on January 19th, 2011:

Since the payment is based on the ability to pay (which would have to be a percentage of income, since the ability to pay changes as people get and lose jobs, there will likely be some difference between the cost of the plan and the revenue it can collect. That difference will have to be made up with either an income tax on the top 20% of households or a payroll, consumer value added or employer income tax (on all value added). It is essentially the same thing as what I proposed below – a public option subsidized by broad based taxes.

Michael Bindner :: 2:01 pm on January 19th, 2011:

It is more consumers that find it anethema than liberals. Actually, it is likely the providers who would get stuck when the catastrophic deductible is less than the accompanying Medical Savings Account – since such accounts usually accumulate over the year rather than on day one of the coverage period (unless you include elements of the Flexible Spending Account or go halvesis on the HSA and FSA).

I currently have a high deductible plan with bills over two years old yet to be paid, mostly because we are responsible for writing the check to the HSA and we have not been. Such deductions must be automatic for any regime like this to work (which would then decrease many people’s perceived liquidity and slow the economy).

Liam :: 2:32 pm on January 19th, 2011:

Um, the “window” idea has a problem – people change employment and health insurance situations throughout the year.

And the fact is that people over 50, whose insurance is most expensive, are more and more becoming self-employed on a contractual basis without benefits, so self-insurance is ballooning but the pool is being skewed (basically, employers are sifting out the lower-risk people as employees in the group plans, and the higher-risk people are increasingly outside the plans). It may be rational, but it’s in deep conflict with the purpose of insurance in capitalism (aside from the profits of insurers), which is to create as large pools of diversified risks as possible.

It’s this factor that is most likely to rudder an eventual collapse of private insurance, btw. Every insurer and employer will want to be the ones with the cream of the crop, as it were; but if that’s the case, ultimately, the risks will be socialized anyway, so why bother with the expense of a skimmed-off private market?

Alan :: 2:49 pm on January 19th, 2011:

I agree that it makes sense to purchase insurance, especially if it can be made affordable by addressing cost (again, always an issue).

The part I don’t agree with is that it was either necessary or wise to mandate that people purchase private health insurance. I believe people should be allowed to forgo insurance if that is what they chose to do. But of course, they must also live with the consequences. The consequence is that they will have to pay for any necessary care out of their own pocket, and if they cannot and default on this obligation, then they will be enrolled in program that makes payment on their behalf and then recoups the cost not from the taxpayers or the people who have insurance, but from people who are in the same boat that elected to forgo insurance and did not live up to their obligation to pay for the services they received. If necessary, they would be paying into this program for the rest of their lives, but that is the risk they chose to take when they did not purchase insurance. You could consider it to be catastrophic insurance that you pay for after the fact if you end up using it.

Alan :: 2:56 pm on January 19th, 2011:

Not necessarily. Some people might not have the ability to pay at the time they receive medical treatment, but as their earning ability increases, the amount they can pay would increase. By charging these people more, when they later gain the ability to pay, the plan could pay for itself. In other words, just like an insurance plan, some people would end up paying more than they draw out in benefits, while others would end up paying less. The payment amounts would be structured to try to make that balance out, just like insurance. The difference with insurance is that you would be paying after the fact, not before, and the after-the-fact amounts would have to be higher than would be under insurance, to make up for the insurance payments that you did not make on the front end.

roe :: 4:45 pm on January 19th, 2011:

make my day – the era of for profit medical insurance and providers is over – we are just witnessing the long slow funeral

Drew :: 12:29 am on January 20th, 2011:

The problem with this is asymmetric information. An individual always knows more about their health than an insurance company or the government. If we require insurance companies to take anyone who comes to them, people will wait until they are very sick before buying insurance, thus avoiding premiums and getting all the benefits of coverage. In essence, cheating. This is what the mandate prevents.

Your proposal assumes that people who choose to be uninsured and then get sick will try to get treatment, rather than first going and buying insurance. Given the choice (since insurance companies would have to sell them a plan), they’ll always get insurance first. It’s far cheaper to them.

The central problem is that you can’t force insurers to take anyone who comes (ignore preexisting conditions), yet not require people to buy insurance with a mandate.

Or maybe your plan doesn’t include the preexisting conditions bit.

Alan :: 10:37 am on January 20th, 2011:

Yes, that’s correct. Pre-existing conditions for which you had no insurance would have to paid for out-of-pocket. You would not be able to wait until you get sick and then get retroactive coverage.

Michael Bindner :: 3:28 pm on January 20th, 2011:

You assume that everyone eventually gets a decent wage. That is entirely not the case. It sounds a lot more complicated than a subsidized public option. You really can’t do this without subsidies.

Alan :: 5:48 pm on January 20th, 2011:

The “public option” still requires people to purchase the public insurance. This proposal attempts to do away with the requirement to purchase insurance, allowing people to make their own choice, but at the same time without allowing them to take advantage of the system. It does not assume everyone eventually gets a decent wage–just that enough people do–and those people would subsidize the ones who don’t. The important part though is that this pool is made up only of people who elect not to have insurance and then defaulted on their health care bills. It basically devides the population into three groups:

1. People who chose to purchase insurance.

2. People who chose not to purchase insurance and meet their obligations to pay out of pocket for any health care they receive.

3. People who chose not to purchase insurance and default on their obligations to pay for any health care they receive.

The proposal ensures that these three groups are treated independently and no one from one group has to subsidize anyone in one of the other groups.